Osama is rumored to have been spotted in the company of board game
and children's book star, Carmen San Diego. Looking lean, tired,
and appearing on video without his usual evil smirk, Miss San
Diego, with the help of one Mr. Al Jazeera, was allegedly able to
spirit the formerly well-fed terrorist out of Afghanistan from his
cave (which the U.S. may have missed in its recent bombing runs)
into a Pakistani, Yemeni, or Iraqi doughnut shop frequented by
Elvis Presley, James Dean, Marilyn Monroe, and D.B Cooper, all of
whom he has apparently befriended in recent weeks.

In the frequent misdirection and deception perpetrated by the
Taliban and Al Queda during past rumored sightings, clues left
behind at every supposed encounter have included hundreds of
uneaten cream and jelly-filled doughnuts, which has led
intelligence officials to believe that they have uncovered a
financing scheme to manufacture 100% unholy donuts in an effort to
infuse fresh cash into their war effort.

One thing is for sure. A few more of the offending, sugared-up,
jellified gut busters should have Osama back to fighting weight by
the time of his next video appearance, though no firm date has yet
een given.

This has been Bernie Fetzpuck reporting live from the bombed-out
remnants of Jihad's Donut Shop, Home of the Unholy Donut somewhere
in the Middle East. Now back to you Dan, Peter, and Tom.

Well, as we can all see, Fundamentals Guy kept himself amused for
a few minutes by helping Bernie with a contribution to the above
story. What can I say? It was a slow news day.

But in all seriousness, there was some news today, none of it
earthshaking, but interesting nonetheless. First, natural gas
inventories fell by 81 bcf (bln cubic feet) in the latest week.
Meanwhile, contrary to yesterday, oil prices fell 4% today, as oil
traders now believe that OPEC's agreement to cut production has
holes. Andy why shouldn't they since it was reported today that
OPEC nations "overshot" their production quotas by 459K barrels
per day. Translation: They cheated and produced more than
agreed. Future compliance to quotas will be poor.

Second, semiconductors got a boost today on news that Samsung is
considering the broader use of AMD chips in its products, as it is
unable to get a steady supply of Pentiums. That must mean that
chip inventories are getting absorbed and production ramps will
begin again soon. Party! As a by-product, Merrill lowered its
AMD loss estimate in Q4 from -$0.23 to -$0.15 AMD was upgraded by
Merrill. It's still a loss, but by golly, extra revenue should
help to minimize that loss. (Pet peeve: awarding higher values to
companies that perpetually lose money). Nonetheless, that was
good for INTC and others too (including ATML and MU), as a rising
tide floats all boats, even those with big holes in their P&L's
(including ATML and MU again).

Nortel (NT) chimed in with news today that (despite a Hold
reiteration by Dresdner Kleinwort) that it too would suffer a
smaller loss than originally forecast. But today's announcement
was merely a reiteration of the same story on December 21st as
they took loss estimates from -$0.20 back to -$0.16. The reason?
A condition to maintain certain earnings ratios as a part of their
$1.57 bln debt financing package. Why debt? Pretty tough to sell
stock with the possibility of having it become worthless if the
economy does not recover soon. Also, as a debt holder, I have
collateral and can theoretically get some of my money back if NT
defaults. Not so with stock.

Finally (and amazingly), home loan applications are up
substantially in the last month and reached a new record
suggesting that the real estate and credit bubbles are alive and
well, and are providing the illusion that a large number of
Americans own their own homes (along with their bank as a 70%-97%
partner) and want to live the American dream of home ownership
(along with larger debt to their lender).

Other than that, not much to talk about, so let me make a quick
chart observation before we get to the meat of it. Despite
falling stochastics on weekly charts, there is some inherent
strength to be seen as candles hold steady. Nutty as it seems
(since when were markets ever rational?), the trading environment
still favors the bulls. While there may be volatile indexes to
trade, a quiet volume week based on a holiday schedule is not
likely to be the beginning of any big trend in either direction.
Trade them, but don't keep them.

Now for the charts.

Dow Industrial chart (INDU):

Though struck by lack of volume on the NYSE at only 883 mln
shares, the Dow eked out another gain today - 43 points to be
exact. In the process, it finally broke through and held its 200-
dma, which isolated, would be bullish. However, it is now
encountering the 62% retracement bracket from the May highs at
resistance of 10,135, not to mention the upper Bollinger band.
While the daily chart is still in danger of turning over, the
60/30 bullish wedge pattern suggest a trading breakout may be at
hand given the bounce from the channel line. Though the 60/30
stochastics are inconclusive, the weekly/daily stochastics are
maintaining a bullish direction in conjunction with candles.

NASDAQ-100 chart (NDX):

Despite strength in the SOX today, the NDX is not as healthy as
the Dow or SPX. While the weakly chart is declining ever so
slightly (or small downturn at best), the stochastics are falling
harder - slightly bullish . But on the daily chart, NDX just hit
its 200-dma, the upper channel line, and/or the upper edge of a
possibly forming BULL pennant. An oversold stochastic supports
the notion that it might see a breakout vs. the former statement
in favor of the bears. Flip a coin and move to the 60-min chart,
which also says to flip a coin based on the neutral wedge. It too
could break either way. No clear play here right now, except
perhaps a back month straddle given the reduced volatility.

S&P 100 chart (SPX):

SPX more resembles the Dow. The flat trading range given the
falling weekly stochastic is an inherent strength. Meanwhile, the
daily chart is still bullish despite the flattening of the 5-
period curve. It also has room to run given that it is shy of its
200-dma of 1167 and 38% retracement since September, 2000. The
bullish wedge formation on the 60-min chart too suggests a
breakout is possible. But the 60/30 stochastics tell us nothing,
as they are choppy and directionless in this low volume market.

The VIX though, now at its lowest closing level since July 3rd,
suggests a growing amount of complacency in equity markets as it
clocked in today at 22.28. The crowd has moved quite a ways to
the bullish side of the boat. Not to say that it can't go more
that way. But the last time it was this low, the equity markets
were very near falling off a cliff. This has some bears awakening
from a slumber.

Still, my own thinking is that bulls maintain the upper hoof for
now. Not everyone yet is on the bullish side of the trade and
there are still a few bears out there shorting into every rally
and getting killed. Only when everyone agrees with the bulls and
bears have crawled into their caves will I feel good about placing
larger amounts of capital into this market - on the PUT side.

Shorter-term, we have only one more full day of trading for the
year, which leaves little time for funds to dress their windows
and place medium-sized orders into a thinly traded market in order
to move prices drastically. Perhaps tomorrow a bagful of economic
news will convince some traders to move one direction or the
other. Initial claims, durable orders, Chicago PMI, existing home
sales, and new home sales are sure to create a economic news
porridge that will be too hot, too cold, or just right for a
majority of those in the market tomorrow. No matter what, it may
well create some initial volatility that breaks the pop-flat-drop
pattern of the last two days and may give us a bit more volume
along with the volatility.